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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-19260
RENTECH, INC.
(Name of small business issuer in its charter)
COLORADO 84-0957421
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1331 17TH STREET, SUITE 720
DENVER, COLORADO 80202
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(Address of principal executive offices)
Issuer's telephone number, including area code:
(303) 298-8008
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports); and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
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The number of shares outstanding of each of the issuer's classes of common
equity, as of June 30, 1998: common stock - 35,344,046
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RENTECH, INC.
FORM 10-QSB QUARTERLY REPORT
Table of Contents
PART I - FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
and September 30 1997. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Operations for the three and nine months
ended June 30, 1998 and June 30, 1997. . . . . . . . . . . . . . . . . . .5
Consolidated Statement of Stockholders' Equity for
the nine months ended June 30, 1998. . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1998 and June 30, 1997 . . . . . . . . . . . . . . .7
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . .8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.. . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Change in Securities - None. . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities - None.. . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders - None.. . . . . . . 18
Item 5. Other Information - None.. . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 18
(a) Exhibits - None
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RENTECH, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 645,987 $ 391,487
Accounts receivable, net 296,256 150,911
Inventories 100,716 107,151
Prepaid expenses and other current assets 262,513 52,688
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Total Current Assets 1,305,472 702,237
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PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated
depreciation of $165,619 and $126,774 as of
June 30, 1998 and September 30, 1997 respectively 194,739 172,863
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OTHER ASSETS
Licensed technology, net of accumulated
amortization of $1,115,765 and $944,208 as of
June 30, 1998 and September 30, 1997 respectively 2,315,383 2,486,940
Goodwill, net of accumulated amortization
of $103,240 and $43,685 as of June 30,
1998 and September 30,1997 respectively 1,106,475 1,166,030
Synhytech plant held for sale 99,500 99,500
Accounts receivable 191,206 191,206
Investment at cost 602,323 34,823
Deposits and other 56,116 3,605
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Total Other Assets 4,371,003 3,982,104
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Total Assets $5,871,214 $4,857,204
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</TABLE>
See notes to the consolidated financial statements
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RENTECH, INC. AND SUBSIDIARY
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 200,441 $ 130,201
Accrued liabilities 165,189 122,166
Convertible notes payable -0- 560,500
Current portion of long-term debt -0- 475,000
Note payable, related party -0- 90,000
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Total Current Liabilities 365,630 1,377,867
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LONG-TERM DEBT, net of current portion -0- 125,000
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TOTAL LIABILITIES 365,630 1,502,867
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COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock - $10 par value; 1,000,000 shares
authorized; 170,000 and no shares issued and
outstanding 1,700,000 -0-
Common stock - $.01 par value; 100,000,000 shares
authorized; 35,344,046 and 29,539,548 shares
issued and outstanding 353,438 295,392
Additional paid-in capital 15,274,203 12,794,769
Accumulated deficit (11,822,057) (9,735,824)
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Total Stockholders' Equity 5,505,584 3,354,337
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Total Liabilities and Stockholders' Equity $ 5,871,214 $ 4,857,204
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</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 586,451 $ 608,432 $ 1,381,800 $ 713,000
Contract revenues -0- -0- -0- 5,249
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Total Revenues 586,451 608,432 1,381,800 718,249
COSTS OF SALES:
Cost of sales 258,456 302.715 627,290 340,526
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GROSS PROFIT 327,995 305,717 754,510 377,723
EXPENSES:
General and administrative 645,947 328,013 1,828,127 822,661
Depreciation and amortization 87,146 69,121 267,329 195,383
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Total Expenses 733,093 397,134 2,095,456 1,018,044
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LOSS FROM OPERATIONS (405,098) (91,417) (1,340,946) (640,321)
OTHER INCOME (EXPENSE):
Interest income 14,740 1,692 21,678 3,186
Interest expense (2,635) (7,894) (113,793) (8,017)
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Total Other Income (Expense) 12,105 (6,202) (92,115) (4,831)
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NET LOSS (392,993) (97,619) (1,433,061) (645,152)
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Dividend requirement on Preferred Stock 425,062 469,575 653,172 644,644
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LOSS APPLICABLE TO COMMON STOCK $ (818,055) $ (567,194) $ (2,086,233) $ (1,289,796)
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Weighted average number
of shares outstanding 34,294,355 19,323,453 31,795,381 15,613,269
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PER SHARE
Basic and diluted $(0.02) $(0.03) $(0.07) $(0.08)
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</TABLE>
See notes to the consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders' Equity
For the Nine Months ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Par Par Paid-in Accumulated
Shares Value Shares Value Capital Deficit
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<S> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1997 -0- $ -0- 29,539,548 $295,392 $12,794,769 $ (9,735,824)
Preferred stock issued
for cash net of offering
costs of $200,000 200,000 2,000,000 (200,000)
Preferred stock converted
into common stock (30,000) (300,000) 309,789 3,098 306,691
Common stock issued
for cash net of offering
costs of $53,559 2,567,908 25,680 629,107
Common stock issued
on conversion of
convertible notes payable 2,500,801 25,008 595,492
Common stock issued
for interest expense on
convertible notes payable 60,000 600 45,021
Common stock issued
for future services 166,000 1,660 186,525
Common stock issued
as deposit on future
investment 200,000 2,000 335,500
Dividend accrued on
Preferred stock (72,074)
Deemed dividends on
Preferred stock 581,098 (581,098)
Net loss for the nine
months ended
June 30, 1998 (1,433,061)
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Balances, June 30, 1998
(unaudited) 170,000 $1,700,000 35,344,046 $353,438 $15,274,203 $(11,822,057)
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</TABLE>
See notes to the consolidated financial statements.
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<TABLE>
<CAPTION>
RENTECH, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, (Unaudited) 1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(1,433,061) $ (645,152)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 270,887 195,234
Interest paid with Common Stock 45,621 -0-
Changes in operating assets and liabilities:
Decrease in restricted cash -0- 25,000
(Increase) in accounts receivables (145,345) (234,107)
Decrease(Increase) in inventories 6,435 (3,664)
Decrease in property tax receivable -0- 71,813
(Increase) in prepaids and other current assets (21,640) (22,841)
(Increase) in deposits and other assets (2,511) -0-
Increase in accounts payable
and other accrued liabilities 50,049 99,137
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Net Cash Used in Operating Activities: (1,229,565) (514,580)
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INVESTING ACTIVITIES
Purchase of business -0- (1,107,635)
Purchase of equipment (60,721) (12,941)
Payments for deposit and other -0- (91,574)
Deposit on planned acquisition (50,000)
Cash investment in ITN (230,000) (34,823)
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Net Cash Used in Investing Activities: (340,721) (1,246,973)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from convertible notes payable 60,000 -0-
Repayment of notes payable (690,000) -0-
Proceeds from issuance of preferred stock 2,000,000 1,265,535
Proceeds from issuance of common stock 708,345 782,508
Payments for offering costs (253,559) -0-
Proceeds from stock subscription receivable -0- 50,000
Preferred stock redeemed -0- (352,350)
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Net Cash Provided by Financing Activities 1,824,786 1,745,693
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 254,500 (15,860)
Cash and Cash Equivalents,
Beginning of Period 391,487 210,486
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Cash and Cash Equivalents,
End of Period $ 645,987 $ 194,626
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</TABLE>
See notes to consolidated financial statements.
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RENTECH, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998 (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying statements should be read in
conjunction with the audited financial statements included in the Company's
September 30, 1997 annual report on Form 10-KSB. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the full fiscal year
ending September 30, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, Okon, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Okon, Inc, which was acquired in March 1997, is engaged in the
business of manufacturing and selling water-based stains, sealers and
coatings.
Inventories -Inventories which consist of water protection sealants,
chemicals and packaging supplies, are recorded at the lower of cost
(first-in, first-out) and market.
Licensed Technology - Capitalized investment in licensed technology
represents costs incurred by the Company primarily for the purpose of
demonstrating, to prospective licensees, the Company's proprietary
technology, which it licenses to third parties under various fee
arrangements. These capitalized costs are being amortized using the straight
line method over 15 years.
Synhytech Plant Held for Sale - The Synhytech plant held for sale is
recorded at the lower of cost or net realizable value.
Property and Equipment - Property and equipment is stated at cost and
depreciated and amortized using the straight-line method over the estimated
useful lives of the assets, which range from five to seven years except for
leasehold improvements which are amortized over the shorter of the useful
life or the remaining lease term.
Excess of Cost Over Net Assets Acquired - The excess of cost over net
assets acquired, which relate to the acquisition of Okon, is being amortized
over a 15 year period using the straight-line method.
Long-Lived Assets - Long-lived assets, identifiable intangibles, and
excess of costs over net assets acquired (goodwill) are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the expected future cash flow from
the use of the asset and its eventual disposition is less than the carrying
amount of the asset, an impairment loss is recognized and measured using the
asset's fair value.
Revenue Recognition - The Company reports its contract revenue on
fixed-priced contracts using the
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percentage-of-completion method of accounting measured by the percentage of
job costs incurred to date to the latest estimated cost to complete for each
project. Job costs incurred prior to the Company's entering into a contract
are expensed as incurred and excluded from the percentage-of-completion
calculation.
Sales of water-based stains sealers and coatings are recognized when the
goods are shipped to the customers.
Research and Development Costs - Research and development costs are
charged to expense as incurred.
Net Income (Loss) Per Share - Statement of Financial Accounting
Standards No. 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of shares outstanding during the period. Diluted
earning per share reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted earnings per
share. Convertible preferred shares, options and warrants are not considered
in the computation of diluted earnings per share as their inclusion would be
antidilutive.
3. PREFERRED STOCK
During the period the Company issued 200,000 shares of Series A
Preferred Stock at $10.00 per share together with warrants to purchase
200,000 shares of Series B Preferred stock and, at the option of the Company,
up to an additional 600,000 shares of Series B Preferred Stock at $10.00 per
share. Net proceeds from issuance of the Series A Preferred Stock was
$1,800,000. The Series A Preferred Stock pays a dividend of 9% per year and
is convertible over 18 months into common stock at the lesser of the average
closing bid price of the common stock for the five trading days preceding the
sale of the preferred shares, or at 82.5% of the average closing bid for the
five trading days preceding the conversion of the Series A Preferred Stock
into common stock. During the period the Company recorded a deemed dividend
of $581,098 with respect to the discount and recorded accrued dividends of
$72,074 with respect to the 9% dividend on the Series A Preferred Shares.
During June 1998, 30,000 shares of Series A preferred stock including accrued
dividends were converted into 309,789 shares of common stock.
The warrants provide for the purchasers, during the 18 months after
purchase of the Series A Preferred Stock, to purchase and the Company to
sell, 200,000 shares of the Series B Preferred Stock and provide the Company
during the same period the option to sell to the purchasers an additional
600,000 shares of the Series B Preferred Stock at $10.00 per share. The
Company has no obligation to sell any of the 600,000 shares of the Series B
Preferred Stock to the purchasers. The Company does not have to sell any of
the 800,000 shares of the Series B Preferred Stock to the purchasers if
certain conditions occur, primarily related to volume and the price of the
common stock in the market. The Company has no obligation to sell any of the
800,000 shares of the Series B Preferred Stock if the average daily share
price for the common stock for the 10 trading days prior to the sale is less
than $1.00 per share. The Series B Preferred Stock pays a dividend of 9% per
year and is convertible into common stock until December 31, 1999 at 82.5% of
the average closing bid for the five trading days preceding the date of
conversion.
On July 20, 1998 the Company issued 100,000 Series B Preferred stock for
$1,000,000 in cash before offering costs of $100,000. The Series B Preferred
Stock is convertible into common stock at a discount. The Company recorded a
deemed dividend of $24,060 with respect to the discount.
4. CONVERTIBLE NOTES PAYABLE
In April 1998 the Company converted $620,500 of its 10% Convertible
Subordinated Promissory Notes ("Notes") into common shares thereby
eliminating the last of the Company's existing debt. On May 8, 1998, the
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Company paid the note holders a total of $31,025 as interest due on the
notes. The note holders received 2,500,801 shares of the common stock of the
Company on conversion of the Notes, all in accordance with the terms of the
1997 Private Placement. Additionally, the brokerage firm of
Neidiger/Tucker/Bruner, Inc. exercised Warrants received in the 1997 Private
Placement of the Notes for 233,959 shares of the common stock of the Company
for which the Company received $77,206.
5. INVESTMENT IN ITN/ES
On May 6, 1998, the Company and ITN Energy Systems, Inc. (ITN) agreed to
form a venture to design, develop and manufacture active and passive Radio
Frequency Identification tags (RFID tags) which have a wide range of
applications. This opportunity utilizes thin-film deposition technology
developed by ITN.
On May 29, 1998, the Company expanded the scope of its ownership in ITN
to include a 10% ownership interest in the 50% ownership interest of ITN in
Global Solar Energy LLC. ITN owns 50% of Global Solar Energy LLC. The other
50% owner of Global Solar Energy LLC is Advanced Energy Technologies, Inc., a
wholly owned subsidiary of Tuscon Electric Power Corporation, which is a
wholly owned subsidiary of UniSource Energy Corporation. Global Solar Energy
LLC was established to manufacture and market flexible photovoltaic (PV)
modules. The additional consideration paid to ITN was 500,000 shares of the
Company's common stock. The Company's earlier investment with ITN enabled the
Company to acquire interests in other technology ventures with ITN and did
not include the derivative interest in Global Solar Energy LLC.
The total consideration payable to ITN in exchange for 10% of ITN's
issued and outstanding shares is as follows:
- A $200,000 cash deposit
- Issuance of 1,700,000 common shares of Rentech, Inc. and
- Issuance of warrants to purchase up to 200,000 additional shares of the
Company
If at any time after nine months from May 29, 1998, ITN elects to sell
some of its Rentech shares and if at that time the closing bid price of the
Rentech shares is less than $0.40 per share for a period of 20 consecutive
days, ITN shall have the right to sell up to 1,700,000 of the shares to the
Company for cash, during the following 12 month period. The purchase price
payable by the Company for each of its shares will be $0.40. On May 29, 1998,
the Company advanced ITN 200,000 shares prior to the closing. On July 1, 1998
the Company finalized the purchase of 10% of ITN and issued the additional
500,000 shares and released 1,000,000 shares from escrow.
6. COMMITMENTS
(a) On February 6, 1998, the Company entered into a Consulting
Agreement whereby it agreed to issue 66,000 shares of unrestricted voting
common stock and pay $10,000 per month for a period of 12 months for public
relations services.
(b) By letter of agreement dated December 31, 1997, the Company agreed
to issue 100,000 shares of their common stock to Howard, Weil, Labouisse,
Friedrichs, Inc. in return for assisting the Company's Board of Directors in
determining an exercise price of a shareholder rights plan.
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7. SUBSEQUENT EVENTS
On May 27, 1998, the Company entered into a Letter of Intent, subject to
due diligence and financing requirements, to purchase the assets of a Rocky
Mountain based manufacturing and machining company.
During July 1998, 125,000 shares of Series A Preferred stock were
converted into 1,250,000 shares of common stock.
On July 20, 1998, the Company issued 100,000 Series B Preferred stock
for $1,000,000 in cash before offering costs of $100,000. As discussed at
Note 3, the Series B Preferred Stock is convertible into common stock at a
discount. The Company recorded a deemed dividend of $24,060 with respect to
the discount.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standard
No.130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standard No.131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distribution to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement
that displays with the same prominence as other financial statements. SFAS
131 supersedes Statement of Financial Accounting Standard No. 14 "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes
standards of the way the public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosure regarding
products and services, geographical areas and major customers. SFAS 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact if any,
the standards may have on future disclosures. Results of operations and
financial position, however, will be unaffected by the implementation of
these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other post retirement benefits and
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis. SFAS No.
132 is effective for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless such
information is not readily available. Management believes the adoption of
this statement will have no material impact on the Company's financial
statements.
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities ("SFAS No.133")". SFAS No. 133 establishes
standards for recognizing all derivative instruments including those for
hedging activities as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value. This
statement is effective for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133 on its financial
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statements.
8. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS
Excluded from the statements of cash flows for the nine months ended
June 30, 1998 and June 30, 1997 were the effects of certain noncash investing
and financing activities as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Issuance of common stock from conversion
of preferred stock and accumulated dividends $890,877 -0-
Issuance of common stock for future services $188,185 -0-
Issuance of common stock from conversion
of convertible notes payable $620,500 -0-
Issuance of common stock for deposit on investment $337,500 -0-
Increase in accrued liabilities for accrued dividends $ 62,285 -0-
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE, 30, 1998 AND
1997
Results of Operations.
For the three and nine months ended June 30, 1998, the Company recorded
losses of $392,993 and $1,433,061, compared to net losses of $97,619 and
$645,152 for the comparable periods in 1997. The increase for 1998 is
primarily due to increases in general and administrative expenses and
interest expense, which includes a non-cash interest charge of
approximately $45,000 relating to discount on convertible notes payable.
These increases are partially offset by profit from the operations of the
Company's Okon subsidiary which was acquired in March 1997.
Revenues of $586,451 and$1,381,800 were recognized during the three
months and nine months ended June 30, 1998 from net sales of water-based
paints, sealers and coatings by the Company's Okon subsidiary. Revenues of
$608,432 and 718,249 were recognized by the Company during the three months
and nine months ended June 30, 1997. The Company acquired Okon in March 1997.
During the three and nine months ended June 30,1998, cost of sales
related to water-based paints, sealers and coatings was $258,456 and $627,290
as compared to $302,715 and 340,526 for the three and nine months ended June
30,1997 because of the contribution of Okon which was acquired in March 1997.
Gross profit increased to $327,995 and $754,510 for the three month and
nine month periods ended June 30, 1998 compared to a gross profit of $305,717
and $377,723 for the three month and nine month period ended June 30,1997
because of the contribution of Okon which was acquired in March 1997.
General and administrative expenses increased to $645,947 and
$1,828,127 for the three month and nine month period ended June 30,1998,
compared to $328,013 and $822,661 for the comparable periods in 1997. This
increase is due to expenses associated with Okon which were not included in
the prior periods, increased costs associated with public relations, and
increased salary and benefit costs.
Depreciation and amortization increased for the nine month periods
ended June 30, 1998 compared to the nine months ended March 31,1997 primarily
due to depreciation of Okon's equipment and amortization of goodwill acquired
when Okon was purchased in March 1997. The increase of $18,025 in the three
month period ended June 30, 1998 compared to prior year reflects the purchase
of additional equipment in 1998.
Loss from operations for the three month and nine month periods ended
June 30, 1998 increased to $405,098 and $1,340,946 from losses of $91,417
and $640,321 reported for the comparable periods in 1997. The $313,681
increase in loss from operations for the three months ended June 30,1998
compared to the same period in 1997 primarily reflects the increase of
$317,934 in general and administrative expenses and the increase of $18,025
in depreciation and amortization, which were partially offset by the increase
in gross revenues of $21,981 attributable to Okon. The $700,625 increase in
loss from operations for the nine month period ended June 30,1998 compared to
the same period in 1997 primarily reflects the increase of $1,005,466 in
general and administrative expenses and the increase of $286,764 in cost of
sales and the increase of $71,946 in depreciation and amortization, which
were only partially offset by the increase in total revenues of $663,551 of
which $668,800 was attributable to Okon which was acquired in March 1997.
Interest income was higher during the three month and nine month periods
ended June 30, 1998 as compared to the same periods of 1997 because of the
Company's increase in cash on hand.
-13-
<PAGE>
Interest expense during the nine month periods ended June 30, 1998 was
$113,793 compared to $8,017 during comparable 1997 periods due to interest
charges relating to the addition of $1,310,500 in debt after June 30, 1997.
The remaining debt was discharged early in the three month period ended June
30, 1998 resulting in interest charges of $2,635 compared to $7,894 in the
comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 1998, the Company had working capital of $939,842 as
compared to a working capital deficit of $675,630 at September 30, 1997. The
$1,625,472 increase in working capital is due to the net proceeds of
preferred stock issued for $1,800,000 in cash, net proceeds of common stock
issued for $654,786 and the net proceeds of an additional $60,000 in
convertible notes payable, less the repayment of notes payable in the amount
of $690,000 as well as to the ongoing losses from operations. The
convertible notes payable in the amount of $620,500 were converted into the
Company's common stock in April 1998. Convertible preferred stock in the
amount of $300,000 and accumulated dividends was converted to common stock in
June 1998.
To achieve its stated plan to grow, diversify and acquire new
businesses, the Company negotiated the placement of 200,000 shares of Series
A Preferred Stock at $10.00 per share together with warrants to purchase
200,000 shares of Series B Preferred Stock and, at the option of the Company,
up to an additional 600,000 shares of Series B Preferred Shares at $10.00 per
share; or a commitment by the purchaser of up to $10,000,000. As of March 31,
1998 the Company has sold 200,000 shares of its Series A Preferred Stock at
$10 per share. The net proceeds were $1,800,000. The Series A Preferred
Stock pays a dividend of 9% per year and is convertible over 18 months into
common stock at the lesser of the average closing bid price of the common
stock for the five trading days preceding the sale of preferred shares, or
82,5% of the average closing bid for the five trading days preceding the
conversion of the Series A Preferred Stock into common stock. The warrants
provide for the purchasers, during the 18 months after purchase of the Series
A Preferred Stock, to purchase, and the Company to sell, 200,000 shares of
Series B Preferred Stock for an additional $2,000,000 and provide the
Company during the same period the option to sell to the purchasers an
additional 600,000 shares of Series B Preferred Stock at $10.00 per share.
The Company has no obligation to sell any of the 600,000 shares of the Series
B Preferred Stock to the purchasers. The Company does not have to sell any of
the 800,000 shares of Series B Preferred Stock to the purchasers if certain
conditions occur, primarily related to volume and the price of the common
stock in the market. The Company has no obligation to sell any of the 800,000
shares of Series B Preferred Stock if the average daily share price for the
common stock for the 10 trading days prior to the sale is less than $1.00 per
share. The Series B Preferred Stock pays a dividend of 9% per year and is
convertible into common stock until December 31, 1999 at 82.5% of the average
closing bid for the five trading days preceding the date of conversion.
During the period the Company issued 200,000 shares of Series A
Preferred Stock at $10.00 per share together with warrants to purchase
200,000 shares of Series B Preferred stock and, at the option of the Company,
up to an additional 600,000 shares of Series B Preferred Stock at $10.00 per
share. Net proceeds from issuance of the Series A Preferred Stock was
$1,800,000. The Series A Preferred Stock pays a dividend of 9% per year and
is convertible over 18 months into common stock at the lesser of the average
closing bid price of the common stock for the five trading days preceding the
sale of the preferred shares, or at 82.5% of the average closing bid for the
five trading days preceding the conversion of the Series A Preferred Stock
into common stock. During the period the Company recorded a deemed dividend
of $581,098 with respect to the discount and recorded accrued dividends of
$72,074 with respect to the 9% dividend on the Series A Preferred Shares.
During June 1998, 30,000 shares of Series A preferred stock including accrued
dividends were converted into 309,789 shares of common stock.
The warrants provide for the purchasers, during the 18 months after
purchase of the Series A Preferred Stock,
-14-
<PAGE>
to purchase and the Company to sell, 200,000 shares of the Series B Preferred
Stock and provide the Company during the same period the option to sell to
the purchasers an additional 600,000 shares of the Series B Preferred Stock
at $10.00 per share. The Company has no obligation to sell any of the
600,000 shares of the Series B Preferred Stock to the purchasers. The
Company does not have to sell any of the 800,000 shares of the Series B
Preferred Stock to the purchasers if certain conditions occur, primarily
related to volume and the price of the common stock in the market. The
Company has no obligation to sell any of the 800,000 shares of the Series B
Preferred Stock if the average daily share price for the common stock for the
10 trading days prior to the sale is less than $1.00 per share. The Series B
Preferred Stock pays a dividend of 9% per year and is convertible into common
stock until December 31, 1999 at 82.5% of the average closing bid for the
five trading days preceding the date of conversion. On July 20, 1998 the
Company issued 100,000 Series B Preferred stock for $1,000,000 in cash before
offering costs of $100,000. The Series B Preferred Stock is convertible into
common stock at a discount. The Company recorded a deemed dividend of $24,060
with respect to the discount.
The Company expects to realize income during the next 9 months from its
license granted for the plant at Arunachal Pradesh in India. The Company
expects to receive license fees in the amount of $240,000, and additional
fees for engineering services are expected though not yet under contract.
Income from royalties associated with the India plant are not expected until
after the completion of construction and startup and operation of the plant.
The Company is discussing other proposals made by several energy
companies, including Texaco Natural Gas, Inc. for exploitation of the
Company's gas-to-liquids technology through licenses or other business
ventures. No assurances can be made that these discussions will result in
either business ventures or revenues to the Company, or when such results
might occur.
The Company has deferred tax assets with a 100% valuation allowance at
June 30,1998 and September 30, 1997. Management is not able to determine if
it is more likely than not that the deferred tax assets will be realized.
The over-the-counter markets for securities such as the Company's Common
Stock historically have experienced extreme price and volume fluctuations.
These broad market fluctuations, variations in the Company's results of
operations, and other economic and industry trends may adversely affect the
market price of the Company's common stock. Although the common stock is
listed for quotation on the NASDAQ SmallCap Market, there are no assurances
that the common stock will meet the minimum bid price of $1 or other listing
requirements. Accordingly there can be no assurance that the common stock
will remain eligible for quotation on SmallCap Market. In the event of
ineligibility and delisting, the ability of shareholders to sell their stock
and the value of the stock would be adversely affected.
Analysis of cash flow
As discussed under "Results of Operations," the Company had net losses
of $1,433,061 and $645,152 respectively for the nine months ended June 30,
1998 and 1997. The 1998 non-cash expenses include a $45,621 charge for
interest on convertible notes payable satisfied with the issuance of common
stock. The period ended June 30, 1998 includes depreciation on Okon's
equipment and amortization of goodwill acquired when Okon was purchased in
March 1997 which is not included in the comparable prior period.
Operating assets and liabilities included no changes in restricted cash
for the 1998 period as compared to a $25,000 decrease in the 1997 period.
There was a $145,345 increase in accounts receivable during the nine
months ended June 30,1998 compared
-15-
<PAGE>
to a $234,107 increase during the comparable 1997 period.
The nine month period ended June 30, 1998 reflects no change in property
tax receivable compared to a $71,813 decrease for the 1997 period. There was
a $21,640 increase in prepaids and other current assets during the nine month
period ended June 30, 1998 compared to an increase of $22,841 during the
comparable 1997 period.
Accounts payable and other accrued liabilities increased by $50,049
during the nine months ended June 30, 1998 compared to a $99,137 increase for
the comparable 1997 period.
During the nine month period ended June 30, 1998 $1,229,565 cash was
used by operating activities compared to a net cash usage of $514,580 for the
comparable period of 1997.
The Company purchased $60,721 in equipment during the nine months ended
June 30, 1998 compared to purchases of $12,941 during the comparable 1997
period. During the period the Company invested $230,000 in cash with ITN/ES
as an initial payment regarding a joint venture as described in the
investment in ITN/ES note. On May 27, 1998, the Company entered into a letter
of intent to purchase a Rocky Mountain based manufacturing and machining
company. The Company has made a $50,000 deposit on the potential purchase of
this business. This potential purchase is subject to due diligence and
financing requirements. There are no assurances that the Company will acquire
this company.
The Company financed its operating and financing activities by net
proceeds of $60,000 from issuance of convertible notes payable, net proceeds
of $1,800,000 from issuance of $2,000,000 in preferred stock and net
proceeds of $654,787 from issuance of $708,345 in common stock during the
1998 period compared to proceeds of $1,265,535 from preferred stock and
$782,508 from common stock offset by the $352,350 redemption of preferred
stock during comparable periods in 1997.
Cash increased in the nine months ended June 30, 1998 by $254,500
compared to a decrease of $15,860 for the comparable periods of 1997. These
changes increased the ending cash balance to $645,987 at June 30, 1998 from
$391,487 at September 30, 1997. The 1997 changes decreased the $210,486
September 30, 1996 balance to $194,626 at June 30, 1997.
YEAR 2000
the Company could experience difficulties with the year 2000 Issue in
the future. The year 2000 Issue is the result of computer programs that are
written using two digits rather than four to define the applicable year. Any
computer programs that affect the Company's activities and that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations that depend upon such
date-sensitive software or computer hardware. The potential problems include,
among other things, a temporary inability to process transactions, send
invoices, transfer funds, or engage in similar normal business activities.
Based upon a recent assessment, the Company believes the software it
uses would present limited year 2000 Issues. The Company believes that its
activities do not rely upon date-sensitive computer software or hardware for
its own activities. The Company has been unable to evaluate whether the
software and computer equipment used by third parties with whom it conducts
business, including potential licensees, are Year 2000 compliant. If they are
not, then the Company may experience delays and difficulties in receiving
funds from them, and in paying funds necessary to satisfy the Company's
various financial and legal obligations, among other problems. These and
related difficulties,
-16-
<PAGE>
especially if the Year 2000 Issue causes problems and system failures for
other businesses upon which the Company relies, could have material adverse
consequences for the Company and its financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standard
No.130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standard No.131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distribution to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement
that displays with the same prominence as other financial statements. SFAS
131 supersedes Statement of Financial Accounting Standard No. 14 "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes
standards of the way the public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosure regarding
products and services, geographical areas and major customers. SFAS 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact if any,
the standards may have on future disclosures. Results of operations and
financial position, however, will be unaffected by the implementation of
these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis. SFAS No.
132 is effective for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless such
information is not readily available. Management believes the adoption of
this statement will have no material impact on the Company's financial
statements.
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities ("SFAS No.133")". SFAS No. 133 establishes
standards for recognizing all derivative instruments including those for
hedging activities as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value. This
statement is effective for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133 on its financial
statements
-17-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Change in Securities and Use of Proceeds.
The following table shows information concerning all sales of the
Company's equity securities sold by the Company during the period covered by
this report that were not registered under the Securities Act of 1933, as
amended.
<TABLE>
<CAPTION>
Total Exemptions
Date Securities Securities Offering Total Class of From
of Sale Sold Sold Price Commissions Purchasers Registration
- ------- ---- ---- ----- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Oct 17,1997 Promissory 26 $620,500 $ 63,050 Accredited Rules 505,506,
Notes Investors Section 4(6)
convertible
into common
stock
Feb 9,1998 Convertible
Preferred
Stock 200,000 $2,000,000 $200,000 Accredited Rules 505,506,
Investors Section 4(6)
</TABLE>
The promissory notes in the original principal balance of $620,500 were
converted into shares of Common Stock at $.33 per share in April 1998.
The convertible preferred stock was registered with the Securities and
Exchange Commission in March 1998 as per designated S-3 filing (see Note 3).
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None
(b) Current report on Form 8-K dated June 24, 1998 regarding the status of
negotiations with Texaco Natural Gas, Inc.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENTECH, INC.
Dated: August 10, 1998 /s/ Dennis L. Yakobson
----------------------------------------
Dennis L. Yakobson, President
Dated: August 10, 1998 /s/ James P. Samuels
----------------------------------------
James P. Samuels, Vice President-Finance
and Chief Financial Officer
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 645,987
<SECURITIES> 0
<RECEIVABLES> 297,456
<ALLOWANCES> (1,200)
<INVENTORY> 100,716
<CURRENT-ASSETS> 1,305,472
<PP&E> 360,358
<DEPRECIATION> (165,619)
<TOTAL-ASSETS> 5,871,214
<CURRENT-LIABILITIES> 365,630
<BONDS> 0
0
1,700,000
<COMMON> 353,438
<OTHER-SE> 3,452,146
<TOTAL-LIABILITY-AND-EQUITY> 5,871,214
<SALES> 1,381,800
<TOTAL-REVENUES> 1,381,800
<CGS> 627,290
<TOTAL-COSTS> 2,722,746
<OTHER-EXPENSES> 92,115
<LOSS-PROVISION> 1,200
<INTEREST-EXPENSE> 113,793
<INCOME-PRETAX> (1,433,061)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,433,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,433,061)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
